While healthcare providers are looking for a return on investment in telemedicine applications, venture capitalists are looking for a reason to invest in the growing industry. And neither issue is going to be easy to solve.
That was the gist of two separate panel discussions Monday at the American Telemedicine Association’s 2012 Conference and Exposition.
Finding the ROI for providers
The four participants in Monday’s “Paying for Telemedicine” industry executive panel discussion agreed very quickly on one key fact: Forget, for now, about reimbursements. Once you get beyond expecting the government to pay you back for your services, they said, you can get creative and find new sources of ROI.
“You need to rethink the value proposition,” said Roy Schoenberg, MD, CEO of American Well, and “look at all the (other) pieces of the puzzle,” like payers and patients. He said the traditional concept of thinking solely about how physicians will be paid is too short-sighted.
“There are models and innovative ways,” added Kathleen Plath, vice president of sales and marketing for Specialists on Call, “so that we don’t have to wait for reimbursement.”
Moderated by Cardiocom CEO and president Daniel L. Consentino and featuring Schoenberg, Plath and Randall Swanson, vice president of business operations for Intel GE Care Innovations, the discussion tackled what many consider to be the chief barrier to full-on acceptance of telemedicine as a standard of care. And the panelists generally agreed that, instead of waiting for the government to embrace and reimburse for telemedicine, providers need to look for other sources of value.
“Where is telehealth generating value that people are willing to pay for?” asked Schoenberg.
For instance, he said, health plans might be willing to pay to help their members stay healthy and avoid unnecessary hospital visits, patients themselves might be willing to pay if it helps them avoid much more expensive healthcare encounters down the road, and employers – both large and small – might be willing to pay to ensure their workforce is healthy and productive and isn’t taking time off from work to visit the doctor or nurse a cold.
“Self-insured employers … have a big interest in controlling the exploding growth of healthcare costs in their space,” said Swanson.
Schoenberg said the development of accountable care organizations (there are some 150 proposals before the Centers for Medicare & Medicaid Services, said Consentino) will spur telemedicine because they require payers and providers to assume a portion of the risk in preventing avoidable health problems, and “risk is a great thing because it forces people to think about innovation.”
“It’s not cookbook medicine any more,” Swanson said.
On the other hand, Schoenberg said, ignorance is one of the bigger barriers to telemedicine adoption. As an example, he pointed out a recent bill before California’s legislature that was designed to curb illegal use of online pharmacies, but was worded to basically eliminate telemedicine in the state.
“One of the biggest obstacles is we don’t know what we don’t know,” added Plath.
The panelists agreed that telemedicine will continue to grow, regardless of whether the Obama administration’s healthcare reform efforts are overturned by the Supreme Court or how long it takes for reimbursement to catch up. Consentino then pointed out that it’s taken 20 years for telemedicine to get this far, and most of that growth has been seen in just the last couple of years.
“We need to build an evidence base that shows and demonstrates a clear value proposition,” he said.
Finding the value for investors
Value propositions were also the focus of another panel discussion, titled “Financing Telemedicine.”
When it comes to investing in telemedicine technology and services, venture capitalists typically won’t give the time of day to anything intended for a market of less than $500 million. The reason is simple: It costs the same amount of money to develop a product for a small market as it does a large market, but large markets offer more profit potential.
“You want something to pay off big,” said Barbara Lubash, managing director of the investment firm Versant Ventures.
In fact, when it comes to health IT, she said, her firm turns down “nine of 10 – and maybe more” of all requests for funding, and that’s because most are intended for a niche audience that health plans won’t reimburse.
Along with Lubash and Jack Young, senior investment manager for Qualcomm Ventures, the panel discussion featured moderator Molly Coye, MD, chief innovation officer for the UCLA Health System Institute for Innovation in Health. The session’s goal: To explain what the investment community looks for when sizing up potential opportunities in telemedicine.
In addition to market size, that includes “something that solves a top 1, 2 or 3 problem for decision makers,” Lubash said. “It has to be compelling.”
For example, with the rise of accountable care organizations, reducing readmissions is a big issue for hospitals.
“In the past, it was more about getting revenue,” Lubash said. “Now the top problem is not getting heads in the bed, but controlling the underlying costs.”
Also, investors like to work with entrepreneurs that have a track record of success.
“If you can find a person who investors are already crazy about, do it,” she said. “If you can’t, it’s better to come alone than with a runner-up.”
When seeking investment dollars, healthcare entrepreneurs should be able to explain how their product or service will benefit payers, patients, doctors and device makers. How will it reduce costs (payers), improve care (doctors), create conveniences (patients) or drive revenue (device makers)?
“It’s easy to say, ‘I’ve got this great thing,’ but have they thought about how it will satisfy these four constituencies?” he said.
If the product or service is intended for a consumer audience, it should be easy to use, and, if possible, allow for passive adoption. That’s because people are more likely to use a product if it doesn’t require them to change behavior or learn something new, Young said.
When it comes to mHealth, convincing an investor to provide funding can be a difficult task, Lubash said.
“In general, they tend to be (products) with narrow applications and short lifecycles,” she said. “It’s not a sustainable model.”
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